Blockchain Technology: Remodeling the Private Equity Industry

Undoubtedly, private equity investment funds have made many people and institutional investors billions. But all parties are prevented from experiencing the full benefits of this powerful investment vehicle courtesy-structural issues.Real estate investment is inaccessible to many investors across the marketplace. Massive initial buy-ins or a sound intimate market knowledge is required for profitable participation.Private equity todayPrivate equity funds have been a reliable and steady source of income for investors and fund managers. Unlike public companies, a limited number of in-the-know partners hold private equity.Shares can’t be bought and sold on the stock market. This is where shareholder governance and reporting are significantly more manageable. Unlike venture capital, private equity is traditionally used to invest in established businesses seeking to expand or restructure.A growth-oriented private equity fund invests the capital it raises in companies seeking growth capital to facilitate expansion, an acquisition strategy, and restructuring. In addition to providing capital, the fund’s investment team uses its expertise to assist a portfolio company in achieving its growth goal.After a prescribed amount of time, the fund divests its interests in the portfolio companies, which provides a return to the fund’s investors. After divesting its holdings, the fund will be wound down. Then, the private equity firm will start a follow-on fund and repeat the cycle.Stiff structureThough the investment model has been successful, it has also struggled with several inefficiencies.In order to minimize shareholder reporting needs, private equity fund managers have sought to work with a limited number of investors. For participation, the amount of cash typically required can be afforded only by large institutional investors like pensioners or wealthy individual investors. A significant portion of the investing world is unable to participate in this profitable investment structure.Further, liquidation deadlines have been defined by private equity fund structures. The deadlines drive specific behavior which isn’t always in the best interest of maximizing underlying asset value. Many funds liquidated their holdings, after the downturn. Thus, suffered tremendous losses. The investment manager is constrained from generating the best returns for their investors, due to structural deadlines.Blockchain token solutionsBlockchain’s unalterable ledger can be utilized to tie real-world assets to tokens. It strategically combines the benefit of blockchain-transparency, accessibility and security and reliability of real-world investments. Combining smart contracts an immutable ledger will lead to securing ownership of real investments within the blockchain itself.People wanting lower-risk investment opportunities have been shut out of the cryptocurrency expansion as no would want to sink a large portion of their child’s college fund into a cryptocurrency that might not be of worth tomorrow. Here asset-backed blockchain tokens will come into the picture.Asset-backed tokensMurfield Investment Partners, found in 2012 built MIF, a security asset token and a private equity real estate investment portfolio managed by the private equity real estate firm will back the token.Initially, a limited number of U.S. accredited investors and non-U.S. approved parties will receive tokens. Then, public exchanges buy and sell MIF tokens. This can happen after a lock-out period of 90 days to a year. This groundbreaking model presents several opportunities.Initially, the tokens will be received by a limited number of U.S accredited investors and non-U.S approved parties. Then, public exchanges will buy and sell MIF tokens. It can happen after a lock-out period of 90 days to a year.Breaking the rigid structure of private equity investmentTokenization has allowed a lower barrier of entry to participation. It has also allowed liquidity that was previously impossible in private equity fund structuring. This further helps in optimizing the private equity fund structure. Fund managers have lighter redemption burdens under the tokenization model.Investors in need of redemptions can sell their tokens in exchanges and someone else acquires the token. Moreover, the funds don’t have a liquidation deadline; thus the funds can be managed with great efficiency and drive even greater economic returns for the investors.Managers can maximize focus on fund’s long-term net asset value rather than reaching a target exit date. Tokenization opens this world up to a larger participant pool.According to Thomas Zaccagnino, Founder of Muirfield Investment Partners, “We are very excited to bring a new and much improved private equity investment structure to the market. A structure offering better alignment between the investors and investment manager, improved ability to maximize assets values, and enhanced liquidity allowing investors the ability to control how long they participate in the growth of the underlying real estate portfolio.”

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